Source: Fortune.com
Summary
China’s debt burden has grown significantly, with interest payments now consuming 19.2% of the central government’s budget, up from 12% in 2014, according to the Conference Board. A separate report from the Center for Strategic and International Studies found that 19% of Beijing’s spending is for debt interest. This compares to 14% in the U.S. and 25.6% in Japan. China’s debt-to-GDP ratio reached 107% this year, up from 41% in 2015, and is expected to rise to 124% by 2030. Total debt, excluding the financial sector, has surpassed 300% of GDP, according to Capital Economics.
Our Reading
The numbers tell one story.
China’s debt interest spending has surged 341% since 2013, outpacing all other budget categories.
Interest costs now eat 19% of Beijing’s budget, more than the U.S. and less than Japan.
China’s debt-to-GDP ratio has climbed from 41% in 2015 to 107% this year.
The debt boom is now a drag on growth, with unproductive firms propped up by state banks.
Author: Evan Null
China’s Debt Surge
China’s debt has grown rapidly, with interest payments now consuming a larger share of public spending. According to the Conference Board, debt-servicing payments will account for 19.2% of the central government’s general public budget this year, up from 12% in 2014. This trend is also reflected in a report from the Center for Strategic and International Studies, which found that 19% of Beijing’s spending is earmarked for interest on debt. This is higher than the 14% of the U.S. federal budget that goes to interest costs, though less than Japan’s 25.6%. The trend highlights a growing concern for China’s fiscal health.
Debt Growth Outpaces Spending
China’s spending on interest payments has skyrocketed 341% between 2013 and 2025, faster than any other major budget category. By comparison, total spending jumped 102% in that span, with outlays on social security and employment up 207%, science and technology up 137%, and defense up 141%. This indicates that the government is prioritizing debt repayment over other areas of public spending. The rapid increase in debt interest costs raises questions about the sustainability of China’s fiscal policies.
U.S. Debt Also Rising
The U.S. is not immune to rising debt costs. Debt-interest spending has surged about 390% since 2013 to $1 trillion, which also tops the Pentagon’s budget. However, the U.S. economy is accelerating, helped by the AI boom, and despite high inflation, resilient consumers have continued to spend. Unemployment is low and signals full employment, while stock markets are at or near record highs. This suggests that the U.S. is managing its debt in a different way than China.
China’s Economic Challenges
China’s GDP has been decelerating and is on pace to undercut its annual target of 4.5%-5%. While export-facing sectors are growing at a fast clip, trade partners are putting up barriers, Chinese consumers remain reluctant to spend, investment is weak, and the property sector is still digging out from an epic crash. These factors are contributing to a slowdown in China’s economic growth. The government’s focus on state-led growth has not been enough to counter these challenges.
Debt as a Drag on Growth
China’s state-led growth model now looks like it’s running out of steam, and the rapidly expanding mountain of debt is a warning sign. Local governments often seek to boost favored industries with low-cost loans, but this has led to a surge in business debt. Since 2019, business debt has doubled, while revenues are only 30% higher. Creditors continue to roll over loans to keep struggling firms afloat, even as nearly a third of them are losing money. This unsustainable pattern is becoming a drag on the economy.
